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WHY ‘DYNAMIC CAPACITY’ IS KEY TO INVESTORS’ ABILITY TO PREDICT A FIRM’S FUTURE PERFORMANCE IN 4IR

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by Stephen Wyatt is published by Kogan Page

 

In 2015 the World Economic Forum (WEF) seized on the phrase the 4th Industrial Revolution (4IR). 4IR is enabled by the adoption of new technologies (for example, Biotech, Nano, Artificial Intelligence, Machine Learning, Robotics, etc.). However, it also presents the opportunity to address societal inequalities, tackle issues of sustainability and create a more human-centered future. It is driving fundamental changes in the context and speed of business and what businesses need to do to thrive. Similar societal and business disruptions were driven by the adoption of mass-production, which was core in the 2nd Industrial Revolution, and digital-computing, which was core in the 3rd Industrial Revolution.

No industrial revolution happens ‘overnight’. Each company moves at its own speed; some, such as Tesla, are born in 4IR, others, such as Honeywell, pivot and adapt. Many others lag behind or fail altogether, perhaps because they’re approaching the future from the lens of their past. As with all industrial revolutions, dramatic differences are being experienced in wealth creation between firms (and individuals).

 

Why we need to a new way to predict future performance

Investments in companies that thrive in the new outperform investments in those companies that continue with business models and decision-making criteria ‘as was’. Ford mastered mass-production in the 2nd Industrial Revolution, companies such as Digital and Compaq rode the wave of the 3rd, but it’s companies like Tesla and Nvidia that are prospering in the 4th.

In 4IR sector boundaries are blurring, business models are changing and non-traditional competitors are emerging. The future is less like the past and the context of business is more volatile, uncertain, complex and ambiguous (VUCA). In this new environment, every business leader, investor and analyst is still required to assess how well a company is likely to perform whilst recognizing that the future is unknown. Looking at a business through the lens of past success or existing market structure delays adaptation and preparation to win in the future. In 4IR a corporation’s competitive strategy and operational excellence remain important but, in addition, stakeholders need to look critically at 4IR relevant capabilities and activities.

 

Stephen Wyatt

What is ‘Dynamic Capacity?’

Working with executives from over 80 corporations we worked to identify the relative strengths of different sets of capabilities and to then develop an understanding of those that most differentiate performance in 4IR. We then tracked the share-price performance (of those that were public-listed) over a five-year period (Dec 2014-Dec 2019).

The share price of those firms with above average ‘dynamic capacity’ outperformed their own sector peers by just over 30% on average. Whereas the share price of those firms that had below average ‘dynamic capacity’ underperformed their own sector peers by approximately 15%.

A company’s dynamic capacity rating acts as a leading indicator of future differential share-price performance. The differences are most pronounced in sectors that are fastest moving (such as IT, Communications, and Semiconductor).

 

How to measure Dynamic Capacity

There are the three groups of capability that differentially enable an organization to thrive in the dynamic context of 4IR:

  1. The level of Dynamic Capacity. Three capabilities combine together to produce the capacity of an enterprise to pivot and adapt in a timely manner to the future as it unfolds.
    1. Sensitivity to the forces and events that could drive change (and the ability to make-sense of these, to distinguish which are most important to pay attention to). A corporation that is actively engaged in territories globally, could have a structural advantage in sensing what’s driving change, but only if it configures processes and has the culture of listening to the periphery. Rapid in-market experimentation can also help probe what might be evolving.
    2. The ability to quickly decide how to respond and to implement actions that seize on an emergent opportunity, combined with the ability to rapidly scale-up and replicate these initiatives elsewhere. Moving people fluidly between markets can help to accelerate knowledge development and reapplication. This can be facilitated with an organization structure designed to develop, share and apply insight rapidly; for example, grouping markets by similarity of demand or competitive dynamics rather than by geographic proximity.
    3. The ability to adjust the activities and assets of the corporation, how they are configured, what is within and what is outside the boundaries of the enterprise, and how they collaborate externally. For some corporations, such as Unilever and Honeywell, this has resulted in significant series of divestments and acquisitions. Others such as Caterpillar have shown prowess in supply chain flexibility. Collaboration skills, inter-firm and within the business eco-system have become core differentiators of performance for firms such as P&G (for example, the recent creation of the iLab in Singapore).

 

  1. The desire and ability to develop Dynamic Capacity is driven by a strategic outlook that is forward-leaning; a hunger for the ‘to be’ rather than comfort with the ‘as is’. This also has three identifiable components.
    1. A clear, ambitious vision for the future that aligns and energizes stakeholders. Often such visions are based on the pursuit of a societal impact (Purpose-led). For example, Paul Polman’s vision for Unilever to halve its environmental impact whilst doubling the size of the business and to positively impact the lives of a billion people. The primacy of the pursuit of the longer-term purpose provides direction which can help to resolve difficult choices, particularly short-term results vs. longer-term objectives.
    2. Empowering managers to own and to resolve seemingly conflicting goals; such as enhancing operating efficiency and also seeking greater flexibility, or the tension of delivering on current period budgets and forecasts whilst building the capabilities and processes for tomorrow. We found that the greater the proportion of the management cadre that was empowered to think ambidextrously (resolving such tensions), the greater the Dynamic Capacity of the firm.
    3. The organization needs to be energized by continuous adaptation and adjustment. Organizations can become ossified due to their existing practices and organizational structures; departments optimising their performance at the expense of overall, total firm performance. A technique that assists ensuing evolution through continuous change is to designate and empower a C-suite executive to drive and coordinate acceleration. Another technique is to ensure that a common doctrine of change management is understood throughout the organization and that doctrine includes disseminated, empowered, yet coordinated, leaders and teams.

 

  1. The ability to leverage and maintain the Dynamic Capacity is dependent on being effective in developing and deploying 4IR capable talent. In 2020, the World Economic Forum predicted that 50% of employees in developed economies will need to reskill, adopting 4IR relevant skills, by 2025. There is a significant and growing deficit of the skills required for 4IR, both technical skills and managerial and leadership skills. Most people haven’t had the relevant education or experience to manage in 4IR. Three key shifts in talent management are essential to operating dynamically:
    1. The ability to continuously upskill and reskill, at pace, across large proportions of the workforce.
    2. The ability to deploy talent fluidly and flexibly. In particular, the ability to form, perform and reform in teams, creating opportunity and career mobility.
    3. The adoption of human-centered workforce practices that promote employee well-being and support appropriate flexibility.

 

Dynamic Capacity is a leading indicator of firm performance. The faster the marketspaces in which the firm operates are evolving, the more important is the level of Dynamic Capacity. An indicative assessment of the current level of Dynamic Capacity and insight as to which capabilities to focus on enhancing, is easily achieved by executives with inside knowledge of the firm. One way of assessing this is to complete the questionnaire we developed in our research and then discuss the results. An abridged version of the questionnaire can be accessed online for free at https://www.corporaterebirth.com/. On completion of the survey, the executive immediately receives a report in which the strength of the elements of Dynamic Capacity are compared with the median of all participants to-date. A more comprehensive assessment is available in the book ‘Management and Leadership in the 4th Industrial Revolution’. External analysts and potential investors can also use these tools and the overall framework to guide and organize their research.

 

The 4th Industrial Revolution is an exciting time, disrupting ‘what is’ and presenting an opportunity to create ‘what will be’; leveraging multiple new technologies, inventing new business models and addressing societal issues. To thrive, organisations need to have the capacity to act dynamically, to adapt, without being restricted by existing practices or past successes. They need to be energized in the pursuit of a meaningful purpose, expectant of and driving change. To succeed they also need to proactively invest in talent; reskilling/upskilling for 4IR, fluidly deploying teams and fulfilling a Duty-of-Care to all workers.

 

Stephen Wyatt is Professor of Strategy & Leadership at University of Bath, Industrial Associate at the University of Cambridge and author of Management & Leadership in the 4th Industrial Revolution.

 

Business

SET YOUR BUSINESS UP FOR SALES SUCCESS IN A POST-PANDEMIC WORLD

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SET YOUR BUSINESS UP FOR SALES SUCCESS IN A POST-PANDEMIC WORLD

Dean Fiveash, Head of FinTech Sales, IFX

Without doubt the Coronavirus pandemic impacted every aspect of our lives and fundamentally changed the way in which we all conduct business.

From the widespread adoption of working from home, to the amplified focus on employee wellbeing and work life balance, to simply acknowledging that people are more than their job titles and are often juggling childcare, pets and terrible wifi issues all whilst trying to do their job. The last 18 months have altered the way we work forever and in order to set our businesses up for success we have also needed to rethink how we operate.

Dean Fiveash

In a people facing sector like sales,  it’s  clear that the loss of face-to-face interaction is perhaps the biggest loss and an impending challenge as we slowly emerge from the confines of the pandemic. Gone are the days of instant downloads from ‘water cooler’ conversations with the team discussing deals or general matters. Instead, our inboxes and diaries are full of zoom catch ups. This isn’t to say that success has dwindled. Flexibility of working from home has helped many businesses to grow rapidly. In fact at IFX we have enjoyed our ten best months of company sales, but there is no denying the way in which we work within our teams has shifted. So how can you set up your sales teams to maximise its chances of success?

 

Adapting To The Times

For many businesses operating during these unprecedented times the shift towards the work from home culture has seen its benefits. Speed is key in the fintech industry and video calls on top of isolated working has greatly improved our time efficiency allowing us to do more for our clients in the long run. Equally, with the workforce being spread around the country and in some cases even globally, came the need for further rigorous checks and processes to ensure the high standards set in the office environment are still being met.

Despite this I would argue that this made us better sales people, and in turn a more successful and thriving sales team.

Post-pandemic success is grounded in not just the talent of your employees but also how you choose to structure your teams. For me, the old adage ‘People Buy People’ remains the most relevant factor for developing a slick sales team. At the end of the day, the technical stuff can be learnt over time but the proficient people skills needed in client facing roles is more innate.

When evaluating team skills, individuals who demonstrate determination and the ability to keep smiling through adversity are a vital asset, especially in the fast paced fintech industry.

Having worked in numerous team leader roles within the sales industry,  I know the difference that a collegiate and supportive team can make to successfully securing deals. The key is to have people at your disposal who are going to pitch in to help others, in turn making the team more robust. In the post-pandemic world, this will remain the key quality to look for and embed as a core value across the business.

 

Fostering A Successful Culture 

Whilst the team structure and core skills are an important part of the team set up, good management and personal development structure is crucial to success. At IFX, our sales leadership team all have client portfolios and are regularly signing and navigating deals. It’s through giving my team practical experience and regular client interaction that we can gain far better market insight than through managing team activity or KPIs alone.

More discipline is also required when working at home to retain the sales focus whilst navigating domestic distractions. As such, maintaining your employee motivation and focus is something each business should work on. A difficult feat without the physical presence of your team and one balanced on knowing your employees and their individual needs. But little things go a long way, so incentives and perks such as company socials, bonuses or simply a free breakfast can work wonders to motivate others. Another tip is to set  attainable goals and regular check-ins with your team to keep motivation on track to reach peak productivity.

 

Looking Forward

Team dynamics will continue to change to adapt to the ever-changing and rapidly evolving landscape, the secret to success will remain the same.

Something to look forward to in the next couple of years as a movement,  is the greater adoption of smarter contracts and embedded FinTech, which of course as businesses and as a team we will have to adapt to.

Ultimately, my biggest piece of advice to others is to get the basics right.  A leading-edge solution fails to achieve greatness if it isn’t backed with competent sales/relationship managers and attentive operational support. Traditional ingredients for success such as reputation and trustworthiness are built over time, often through word of mouth, but building a competent team who can make your clients happy is essential to that mix

 

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THE EVOLVING TECHNOLOGY NEEDS OF THE FINANCE DEPARTMENT

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THE EVOLVING TECHNOLOGY NEEDS OF THE FINANCE DEPARTMENT

Jennifer Sims, Senior Consultant at Xledger

 

The world of finance software is evolving quickly, but with many new software contenders entering the market it can be a mindfield for organisations. Many finance teams are already using multiple accounting apps and software packages for bookkeeping, payroll and invoicing to service individual needs. Whilst it may work fine for now, this segregated approach isn’t sustainable for long-term growth. The world is swiftly moving to agile, automated ways of working. As a result, there is a growing need to choose suppliers that can fulfil multiple functionalities within the one platform.

Financial software is evolving at such a pace that it can be difficult to keep up. Changing up a finance solution is a big step and ease of migration can be a substantial factor in determining which solution provider to go with. But how do you choose a solution that will grow with your business and still offer something innovative in five or ten years down the line? The fear is always that non-techie organisations will end up falling behind, but in such a highly concentrated industry, how do you decide which solution would work best for you?

 

Cloud-first: the term that makes all the difference 

You could find a ‘cloud-based’ service with an application that comes with automated audit trails to make it easier to meet compliance and record-keeping obligations, for example. But for a solution to offer all of the many future benefits promised by the cloud, it needs to have been built specifically for a cloud environemt from the outset – ie. not an on-premise built system that has been later adapted. Cloud-first services (true cloud) were always intended to leverage economies of scale, cope with live updates, be accessible from anywhere with an internet connection, and to scale rapidly, to name just a few of the many benefits.

When we talk about innovation in financial technology, we’re not just talking about software that makes it easier for the financial controller to create reports. If eliminating reliance on Excel spreadsheets is the only tangible benefit you have to really shout about, you are missing out on the real deal. With ‘true’ cloud finance software the sky is the limit.

Finance and accounting technology needs to directly meet the needs of the finance function and support the wider business needs.  When looking at accounting software platforms you’d be hard pressed to find one that doesn’t now promise ‘cloud-based’ enterprise resource planning (ERP) capabilities. The cloud is nothing new, but it’s the way that a solution harnesses this environment that makes a real difference. And here is where there is a need to read between the lines.

 

Automate more with true cloud 

Historically, repetitive and manual tasks are typical of the finance role – from invoice postings to expense claims handling – these can overwhelm the finance team. Research by Xledger[1] has found that an enormous 91% of CFOs and finance decision makers are carrying out at least one of these repetitive tasks as part of their job. What’s more, senior finance leads are averaging a whopping 25 hours per week carrying out repetitive and manual tasks, compared with 15 hours for other finance decision makers.

A modern, true cloud finance system can enable your business to automate repetitive tasks and provide one source of truth so that teams can make informed business decisions that will help to scale a business. Bank reconciliation, dashboard creation and reporting are just some of the tasks that can be handled automatically.These capabilities are aiding overtasked finance teams and saving hundreds or thousands of hours a year.

Whilst different companies are at different stages in their digital transformation what is clear is keeping up with the latest technology is fundamental to the future success of an organisation.

Xledger is a true cloud finance solution. The basics include invoicing, robust general ledger accounting, detailed slice and dice reporting, purchase orders, billing, VAT reporting, and cash and bank payments. It also adds process and structure to the enterprise with procurement and inventory, budgeting and forecasting, and project accounting. Users are always on the latest version of the software and with regulation more stringent than ever today, Xledger is ISO 27001 accredited.

Choosing the right provider for your financial ERP solution comes down to whether it has the fundamentals right. When hosting all of your vital data in the providers’ own servers, it should evidence a highly tested security process that comes with backup services as standard.

As our demand for technology capabilities grows and as ERP models progress, innovation will become the structure for growth – and there is no end to the possibilities.

 

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